Future of Alternative Financing Panel

Watch a panel discussion on the future of alternative financing for business lending featuring product leaders from Mercury, Stripe Capital and Rutter. Panelists discussed innovations within the lending stack, trends companies are exploring in alternative financing, new types of financing instruments, how companies should evaluate different financing options, the role data plays, where value is captured in the financing industry and more.

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Transcript:

All right, well, perfect. Let's get started, guys. So everyone, welcome to Rutter's future Alternative financing panel, where I'm excited to have our three amazing guests join me today. Just giving quick intros, like Parker is the business lead for Mercury Capital, Manav is the product manager for Stripe Capital, and we also have our very own Eric Morris, who just joined us as Rutter's Head of Product recently and was previously at Plaid and Visa bring a ton of domain expertise as well. So welcome all three of you today's panel, and thanks for joining us. Let's do it. So, to kick things off before we dive into the more specific questions, it would be great if you guys should just give quick intros and your backgrounds, like what your companies do and how you ended up in the world of impact in your current role.

When I get started, Parker sure, happy to kick it off. So my name is Parker. I'm the business product lead on Mercury Capital. Mercury, overall, really, we aim to build banking products that empower founders to build great startups. And so it's a company where we started with thinking about when you start your company, what are those core banking products you need? So your free deposit, checking, saving accounts, achyire, things like that. But we also want to think about how we can help you grow. And so that's where things like Capital come into play, where we think about how can we help you finance your business to be successful.

In terms of how I've found my way here, background in product management, and also spending a lot of time working with startups and just seeing the pain that goes into learning about your options, acquiring your options, and managing your options when it comes to financing your business. And so wanting to be a part of helping founders and the employees of that company succeed through financing. So hopefully that helps with a little bit of an intro. Oh, it well, we're all definitely a big fans of Mercury, and personally, I love the Mercury for startups content that you guys put out as well. All right, Manav, do you want to go next? Yeah, absolutely. My name is Manav, product Manager on Capital. Like you mentioned.

I think everyone interested in syntax, probably joining this, knows what Stripe is. We like to say that our goal is to increase the GDP of the Internet, and Capital is a big part of that. It's stripe's lending product. We both directly lend to SMBs and startups processing payments on Stripe, and we provide an embedded lending product, Capital, for platforms to SaaS, platforms like Lightspeed Job or House Call Pro that allow them to set up a lending program for their own users. And so we see Capital and Lending as a critical piece to helping our businesses grow. My path is was a product manager at Google, worked on a bunch of problems related to emerging markets and entertainment and found myself really gravitating towards syntec and in particular financial services. So that's how I found my way to the Capital team.

All right, well, definitely as an API company, we very much look up to strife and so very familiar. All right, Eric, do you want to go with your intro? Cool. So, Eric Morris, I joined Rutter in early July, so probably the newest of all the panelists here. Before Rutter, I was at Plaid for about three years, where I headed our Money Movement product group and launched two of our products, Signal and Transfer. And then before that I was at Visa for about seven years, and then before that, Bain, and before that I was at a bank. So I've been sort of in and around Fintech forever. And I got super excited about Rutter when I first started taking a look at it because there's nobody really kind of doing the aggregation space for B to B and the data that Rutter could provide based on I guess what I've seen at Plot was just so incredibly enticing, so super excited when started up.

The conversation with Peter and Eric are two founders and really excited to see kind of where we can go with it in terms of what is Rutter do today. So basically what we've done is we've built integrations with all the major sort of business staff platforms on the commerce side and accounting side, and our customers use us for two primary reasons. One is for lending for underwriting to basically get an in depth view of the customer's business to make a smarter underwriting decision. And then the second is kind of eCommerce enablement. So think of like drop shipping and inventory, merchandising, things like this, but the ability to basically view a store across multiple platforms and basically interact with the inventory across multiple platforms and ultimately kind of transact on it. So that's what we do, I'll bet. And then before we dig into the main topic of today's panel and the future of alternative financing, maybe would be great for one of you to touch upon, how does Rutter fit into Mercury and Stripe and would love to just learn more about the relation of all three companies today before we dive in.

Sure, happy to take that and say more later depending on how deep we want to go into this. But on the capital side, one of the products we are providing for our customers is a venture debt product, which for Series A company is roughly as they raise their venture capital round. We also can help them supercharge that round with minimal dilution on top of it by adding venture debt to their raise. And as part of that process, we both need to think about, okay, how do we diligence companies in a way that's actually a great experience for our customers and also is efficient and fast for a Capital Advisor team. And then also once people take venture with us, how do we actually help with the ongoing portfolio management of working with those companies. And so one thing that Rutter helps us do as part of that diligence and that ongoing portfolio management is to actually integrate directly with our customers and their accounting systems in a really consistent way. So it's pretty much a seamless experience that gets us out of email back and forth in Excel documents and Google Sheets and all these places that might just be kind of work about work to apply for venture debt or actually manage the relationship and instead makes it a very seamless connection.

Using Rutter lets the companies, the founders, focus on building their business and our advisors and relationship managers just focus on how can we really understand that business and focus on the value add conversations rather than the work to just manage the relationship of applying and sharing documents over time. Yeah, I can add on to that. I think from a lending perspective, we're always interested in new products that are tapping the problem of getting more data and making it available to folks who want to lend to help them improve their underwriting, to help them target users better with the right products. And so personally, I'm very excited about the prospect of Rutter building a universal commerce financial data API and the opportunity that would create them for alternative lenders to leverage that data in order to help businesses grow similar to what Parker described. I think just building on that and I think we'll talk about this more a little bit later in the panel, but I think embedded lending and what players like Stripe have done really kind of jump started this kind of neo lending space. In many ways they've made it much easier to be shown alone and to be underwritten very quickly just because of all the data they can see. But the challenge is they can only see the data within their four walls.

And I think where we can really help them work together with Stripe is to help expand visibility of the business across all their platforms. And so excited to work with Stripe on that. Awesome. Well right, honestly, start talking about trends. I'm curious, like what are some of the big trends that you guys are seeing in the alternative financing space today given all the changes in the market as well and this explosion within this space. Yeah, I can start on that one. I think we've always known to some extent that access to financing has been a huge challenge for SMBs, for example, the inspiration for Stripe Capital to some extent was we asked our users, what could we do for you? What is something that Stripe doesn't do for you today that you need? And almost a third of those users told us that access to capital was their biggest inhibitor to growth.

And for us that was a clear signal that access to financing was continuing to be a big challenge for SMBs both the time and effort required and just the availability of financing. And so I think the big trend that we're seeing that I think mercury, stripe, et cetera are part of is the proliferation of more automated access to data and underwriting, along with easier banking partnerships has just allowed alternative financing providers to offer more compelling products over time. And we've really seen that emerge very quickly in the last five to ten years. And so for us, as we see more SMBs move their processing online and we're seeing exactly how their business is performing and they want to look to Stripe as their financial hub, it's critical that we offer sort of an integrated financing product and we're seeing that trend everywhere. Yes, I would, yes, and what went off said as well. On our side, we similarly are thinking about how can we help founders finance and grow their business? And so chatting to our existing customer base, seeing what those challenges are similar to what was just described. And I think as everyone's saying we're seeing and hearing there's been a lot of innovation and automation, especially in the SMB space.

So folks, with the hundreds of thousands of revenue and things like that and a lot of variance on almost the merchant cash advance type model in different areas, what we were seeing was, hey, there's a lot of great opportunities there. Can we partner with great folks like Capchase, Payability, Wayflyer, Neo.Tax, and folks who help us in that space? But can we also see where our customers are having a gap, where we're seeing less of technology being brought in and automation being brought in. And so with capital, that's where we've seen this opportunity in the true commercial loan space where we're starting to get a million plus, where it might not be something, where there can be full automation. But how can we use technology to take some of the work out of going back and forth through the diligence and the ongoing management process so that, again, the founders can focus on working with our team and more? Of like the value add conversations to really understand their business and supercharge and streamline kind of the diligence process for these more commercial loans. And so trying to find how we can support not just the broad SMB focus that's starting to happen, but also some of these more commercial loans as companies grow and Rutter is definitely a part of that for us. I think just building on that, I think it's the explosion of these lending products to SMBs that were previously kind of unavailable before.

I think in many ways, the Merchant Cash Advance used to be kind of the loan of last resort. And now, because it's so much easier to apply and there are so many players that are doing it in such a customer friendly way, it's now just much more available and I think people feel much more comfortable, much more comfortable using it. And I think the rates are much more customer friendly. And it's now made it such that it's something you can use to grow your business. It's not something you use only if you have to. Kind of in the last resort. Again, I think that's one of the trends that we've seen.

And I think the other is almost like the Consumeriation. That's a word of SMB lending. I think before, it used to be this world where you'd have to download PDFs and send in a bunch of information and it might take a bunch of time. I think a lot of customers now expect fast turn times, and they expect a simple, easy process. And I think a lot of the tools that are available out there, and especially the way that Mercury and Stripe are approaching are making it just much more easy to do it. And so I think that's really what's also helping to drive that explosion of credit. For sure.

And I'm curious. Given that explosion and this consumerization of SMB lending, what do you guys think startups or, like, small businesses should be thinking about when they're evaluating these different options? What would your advice be to some of these companies? Yeah, I can start it. I think that what we see. At least I'll focus on the SMB side and I'll pass it over to think about startup founders. But within SMB I think it's really important to consider all aspects of lending. I think it's really easy to anchor just on price. But in general, we see the benefit of alternative lending really being around, reducing mind share.

Like. Do you, as an SMB owner, have time to go through a few months long process with a bank? Or is it a lot easier to just go into a portal in your Stripe dashboard? Finish your application in 30 seconds and you have financing as soon as the next day. And then also, are you matching the type of financing product that you're getting to the use case for? That Right. If you're financing a sort of short term, clear ROI venture like a marketing campaign or purchasing new equipment, then it makes sense to take on a shorter term loan. Something more like a working capital loan. But if you're trying to take a riskier longer term debt, then maybe something like venture debt or another financing product would make sense. I think matching the terms of the financing to what you're doing is really critical.

And then finally, I think dilution is a big thing that we've seen emerge as a big focus area for both startup founders and SMB owners in the past few years, which is now you actually have an opportunity to grow your business at a healthy rate while retaining ownership. And the default tends to be VC equity funding. And for a lot of people, that makes sense. But I Think it's important to ask, does that make sense for my business specifically? Because now there are other options where there maybe weren't before saying those are the types of things we see coming up in conversations with startups and SMBs that are using Stripe. Curious what Parker is seeing. Yeah, I mean, without trying to reiterate too much of what you said, certainly agree. Definitely we always want to start from why do you want the financing and kind of what's it for and why is it right for your specific business? So when companies come to us, whether they're interested in venture out of one of the other products, we always want to start from understanding that specific business and trying to help match them to the right product, whether or not that is one of our first party products.

And so just to maybe add a couple of questions that you might want to consider once you decide you do want financing and you're trying to explore who's the right person, definitely think about again what type of relationship you want with them. Do you want more of a pure technology play where you don't have to interface with people? Are you looking for a human touch and more of an ongoing relationship that can kind of build and grow with you? And as you're evaluating that partner, some things you might want to think about. How has a product and experience is important to you? How have they shown investment in the product and the experience in the past? How experience does their team, is this a team that has been doing it for a while, that's been through market changes and is going to be kind of consistent and patient with you or do they not have that proven track record you can look to and they can speak to? Thinking about the company's health. There's been a huge explosion of fintech providers now and so just really is this someone you think you can be with for the long run? And maybe that's not what you need again. And so that's not as important to you thinking about how that company evaluates their folks that they give lending to? And is that evaluation criteria stable? Or are you seeing that change over time so you can kind of have a sense of how stable your relationship might be with them? And then just in general, if you do want to talk to someone, how knowledgeable do they seem about your business? Do they really want to get to know your business, where you're at, what you need? Or are they seeming like they just speak in generalizations and don't actually understand why your business would need their particular type of financing or another one? So agree with everything Manav said and those are some other questions I might throw in the mix for sure. And then I'm curious for all of you guys, what changes, if any, are you guys seeing whether it's Mercury or Stripe or other players how financing companies are evaluating businesses. Given today's environment, whether it's like the market downturn or the recession, I'm just curious, like, how's that impacted, if any, how you guys have approached evaluating companies, financing business, but then also other changes that you guys have noticed as well.

Cool. Happy to start. So I think before it's again, like a little hard to make broad generalization, to be easy for me to just jump in and say the market conditions are getting more challenging and it's only harder to raise. But certainly what we're seeing on the Mercury side is there's a lot of companies that still are raising venture capital, doing that at great valuations and being able to be successful at the same time. While there is a lot of conversation around how PC might be more challenging on the debt side, there is also a question of whether that's becoming more challenging, both potentially from Mercury but also from our partners. And so on the Mercury side and with a lot of our partners, certainly we try to take that longer term view with our approach to why we build the products we built and how we evaluate companies. And so, thankfully, really no major changes on our side.

Still very committed to venture debt. And that will show in the conversations we have, I think we do see certainly that some companies are raising the bar for the types of automated funding they're willing to provide, whether that means they're looking for more revenue, they're looking for more profit, they're looking for a longer track record or history they can point to. So we certainly are seeing some of that, but still to be seen exactly how that will play out over time. Yeah, I would echo a lot of those sentiments. I think by taking a longer term view in general, we've been able to maintain a more stable approach to how we think about underwriting our businesses. I think, as you can imagine, it's critical now more than ever that we make financing available to these businesses. There are still businesses that need working capital to grow, working capital to manage their finances month to month.

And it's critical that Stripe Capital is available for those users, not just when the market is good, but when it's bad. And so I think I've been really excited with the work that our team has been doing to make sure that we're able to continue to make financing available. And the types of things that we might be doing in order to continue down that path are engaging with outside vendors to better understand our users right, working with partners that make data available, requiring more pieces of data potentially in the application process. We want to keep things as frictionless as possible. But we also understand that maybe in this market, it's even more critical to have a full picture of how business is performing in their financial health, not only from a risk standpoint. To make sure that we're offering them. The right product.

And then finally, maybe being a bit more cautious in modeling and understanding that reducing the loan size, while it's something that we maybe wouldn't have been doing before, is maybe critical in this market because not all users are able to take on the amount of debt that they were before. And so our critical path really is making sure that financing still stays available to as many users as possible. I think one of the, I guess the biggest changes I've seen in the last probably five ish years has been this move towards kind of dynamic or real time underwriting. And I think that move will probably only become more and more important, particularly as market conditions change and businesses performance change. And when I say like kind of dynamic or real time underwriting, it's basically like constantly assessing a business's revenue and revenue growth cash flow position to see should you extend them more credit, should you pull back some of the credit? Has the risk profile changed? Has it gotten less risky? Has it gotten more risky? In some cases this can lead to better, more credit available, it can lead to better rates for business. In some cases it might actually lead to a constriction. But I think that move is probably one of the biggest changes that I've seen in the space.

And one thing I might add to that, if that's okay, is while we're definitely seeing a lot of this more dynamic and real time financing, which is huge for companies and hopefully is also breaking down a lot of historical barriers for who can access financing and when they can. It's of course nice to be able to raise money when you don't necessarily need it tomorrow. And so while you can think, hey, maybe it'll be immediately available when I want it in the future, especially where we're in a market where it's unclear exactly where we're going to go, it's good to start exploring those options now, start having those conversations or looking into who those partners might be. Especially if you're thinking in the next six to twelve months that you might want to raise simply because again, it's unclear exactly where things are going to go and it's better to have some existing relationship or some existing understanding rather than feel like you're desperate in that six months or twelve months from now. For sure, yeah, definitely create advice for all startups and small businesses out there and get given at certain times, but definitely great to hear as well about just this increased access for all types of businesses with the proliferation of this data. Before we jump into the actual lending stack, the last question I had for this section is given this proliferation of options, and obviously there's a piece around being a great long term partner, I'm curious for Stripe and mercury. How do you guys think about differentiation and what makes your product offering unique and how you've thought about that as product leaders for your respective products as well? Yeah, I think to answer your second question first constantly, I'm sure it's the same for Mercury, thinking about our target audience.

So for us, It's startups, small business owners, and really understanding what is painful about financing today and how do we solve those problems. Like I've mentioned these before, the time and effort required to take out a loan, right. They're incredibly busy wearing a bunch of hats. Any time spent on financing their business is time taken away from operating it. How do we continue to chip away at the friction in the process without, to Parker's point, taking away entirely the idea of the human touch when that's needed, how do we make sure we continue to make that available and then also just simplicity both in accessing the loan and maintaining the loan. I think that's one of the biggest differentiators within Stripe Capital product is it's set it and forget it. To some extent.

Businesses don't have to worry about having enough cash in their bank account or reserving funds to meet a payment schedule. By withholding from their transactions on Stripe, they know that their loan is going to be taken care of. And I think that's a really critical piece and it's some of the best feedback we get is I was able to take my loan and not worry about it until the day I paid it off and then I got another one from Stripe and it was a great experience. And so I think what makes Capital different to answer your first question, is one especially in the embedded lending area, which I'm sure we'll dig into more. Stripe capital is built on Stripe Connect, which means we're able to distribute via platforms to their end users. And that's really critical to allow our biggest partners to make financing available to their end users. We also, to Eric's earlier point, are pre qualifying users.

Right? We're doing dynamic real time underwriting users know on any given day is financing available to me and if they want it, they can get it as soon as the next day. We're underwriting overlooked merchants because of our proprietary data, our understanding of your entire processing history over time. And that gives us a really strong advantage on the model side. And then what I said before, which is automating the withholding and one obviously the ease of setting it and forgetting it, but also the risk advantage that that creates. We can then pass that on to our users because we're able to reduce our risk by being in the flow of funds. We're able to pass on some of those sort of savings and underwriting eligibility back onto our users, which is critical. Yeah, definitely agree with a lot of what was said there on the product side.

Certainly we're always starting from who are our customers, what are their needs and can we focus on a subset and really solve those? Well, in the interest of not reiterating everything, I think when we think about financing companies and again thinking about the whole journey from education, how do I understand what those options are to actual acquisition and application to managing that over time? We want to I'd say maybe two things stand out, especially if I'll focus on the more true commercial loan space, getting into some of those larger loan types that we're getting into. One side is product and not just the financial product, but the technical product. How can we think about building an end to end experience for our customers that really lets us and them focus on running their business, focus on being supportive there, and less about kind of all the manual back and forth over email, phone call, zoom, et cetera, that currently has to go into that whole process of acquiring and managing the loan. Two, I would say, is the human touch in that. So while we do like to bring a lot of automation, the relationship management that comes with the product we recognize. Especially as you're growing and scaling. You do want someone who you can chat with, who can understand your business and help build a broader set of banking products.

Not just that initial financing that's going to help you succeed and scale over time. And so we have a team of founders, rather than ex bankers necessarily, who can help understand the business and solve problems and solve challenges with you, even if they're not capital specific. So we like to think about that. And then finally, when you take financing with a company, especially these bigger ones, you have to think about what that broader technology relationship is going to look like because you're often working with their banking stack overall. And so we try to stay committed to the full customer need and the full banking stack being a seamless experience that empowers you to just focus on your company being successful in a way that maybe some of the other banks in those larger spaces aren't going to be able to provide that customer centric view. But certainly with our partners and some of those more SMB focused loans, I think I just echo everything Mono said. So just replay what he just said and we'll call it love it.

There you go. We'll keep replaying it. And I love the fact that you guys also have like founders in your team really helping like the founders that you guys are working with for venture debt as well. So now moving on to the next section of things, definitely we've seen a proliferation of fintech infrastructure companies in the last few years, even last year alone, I think every week us opening a headline in TechCrunch with fintech infrastructure API company getting funded. And so would love to dive more into the modern fintech tech stack. What does that. Look like for you guys and then for Eric.

How does a company like Rutter fit into this as well? Yeah, I can go, I guess, at risk of making part of replay what I say again, I'll be quick this time. The underwriting stack for a modern financing company in particular, I would break it down sort of into the data piece and the modeling piece. On the data side, it's really aggregation, normalization intelligence. And at Stripe, we're constantly thinking about how do we get more data, how do we get that data in sort of an unnormalized or streamlined way? And then finally, how do we get more intelligence on that data? Because as Eric probably knows from days at Plaid, like raw, bank transaction data, for example, is pretty hard to use right out of the box for underwriting. And so you're always looking to understand how can we make it more valuable for underwriting? And it's critical because if you don't have the right tools in place, either you're making the wrong decision or you have to be really conservative. And being conservative means that you're not making access to financing available to as many users as you could. And I think that's critical.

And then sort of on the machine learning infrastructure modeling side, I think that goes underappreciated to some extent in Fintech, honestly. But I will say that some of the strongest advantages of the Capital team are risk and data science teams. And both their experience in the field and the tools that they have at their disposal is critical. So I think that's how we think about the stack and like, investing in it. Yeah, definitely on our side too. Similarly kind of gone are the days of just being able to be a neo bank and hold deposits and just kind of leave it there, especially once you have product market fit and you're thinking about how can we solve customer needs more broadly? And so we do need to think about that broader stack and how we can provide financing. And similarly, there is that data layer we're thinking about again, standard, clean, usable.

There's that kind of engine underwriting modeling layer where hopefully we can intelligently identify and underwrite folks for the right financing for them, as well as the customer experience layer. So how can we actually provide a great experience for customers to discover and engage with their potential financing options at the data layer? It's just really important and potentially even at the kind of underwriting layer, that's where, to Eric's point earlier, how can we break down the barriers where Mercury does have access to banking data and can do a lot with that? But certainly the more visibility we have in a standard, clean, usable way, the easier it is for our customers and for us to explore financing. And so with something like Rutter, we get access to a much broader picture of a company's business and how they operate. And that can actually just really ease the ability for us as well as for the founders to have conversations and access the right financing for their business that we wouldn't be able to do on our own, I think. And kind of building on this too, and this is probably less something maybe you don't think about as much, but the KYB piece and you've never seen the customer before in your life.

That piece, to do it right actually takes like a bunch of time to understand if they are who they say they are, if it is a legitimate business. I think one of the beauties of having a relationship with the customer before is you have that history with them, but if you've never seen them before and you're kind of doing these high velocity, high velocity loans, the importance of being able to assess is this customer real? Is this business real? Has it been around for a long time? That's very critical. And players like Alloy, I think, are doing a great job with that mid desk.

So I think that's a key component now for any kind of, I guess, neo lender, SMB lender. I think another piece is the ability to basically collect as much information as you can with as minimal friction as you can. And I think figuring out for your business which data points are most important for making that decision, I think the ability to verify revenue, that is crucial. And there's a bunch of different ways to do that. Rutter can help with verifying commerce data, but there's other ways to do that too. And getting a picture of cash flows, accounting information is super valuable for that. But also you need to kind of verify it.

Trust to verify and bank data is super valuable for that too. So you got to figure out basically which data components you need to plug in for what you're trying to do. And then I think one of the pieces that you mentioned, Monotube, is that the data science component and building like really robust models that can accommodate all that data. I think one of the challenges that we've seen is we're providing so much data and players like Stripe and Mercury can accept all that data. But if you're just kind of getting started, you might have built a model in Excel with a couple of metrics and you can't take in all that data. And so you need to build the ability to consume it, categorize it, as you said, and build features around it and train your models around it. So those, to me, are kind of the big components of the underwriting stack.

Yeah. And one quick thing I'll add to that last point is I've seen infrastructure players go in one of two directions. One is to get really deep on providing as much as detailed data as possible in a particular vertical. Another is to layer on products that help an end use case. Right. And if underwriting is your use case, and I've seen commerce data now across millions and millions of businesses, across many clients, maybe I'm actually relatively well positioned to provide a product, some sort of data intelligence or even underwriting product on top of what I'm doing. And you've seen companies go in both directions with a lot of success.

I think that's also an interesting thing to consider, both if you're a fintech infrastructure company, but also if you're working with those partners, it's like actually leaning on their expertise can be really helpful. And we've had a lot of both success and expect to have more success doing both. Yeah, that's very interesting. Actually leads into our next question. I'm curious, as product leaders focus on the capital side of things and as a financial business unit, what are key considerations that you guys make when thinking about the build versus buy decision? Like, to your point of should we just continue to do things in house versus what are the parts that we're willing to outsource? I'd love to get both of your takes on that and then hear from Eric as well, what you're seeing from across the customers that Rutter works with. Yeah. On builder's side, the most real answer is it comes down to resourcing how important it is.

Is it? And how strapped is your engineering team over the next class? But if we take a step back, another key focus of ours has been our proprietary competitive advantage and the value to the Stripe ecosystem. Right. If building this provides a ton of value outside of capital and in general to the Stripe ecosystem, then it's worth building. And you saw that, for example, in the banking space. We recently launched a product called Financial Connections. I think that's really critical because we know that in other areas of the Stripe ecosystem, it's really critical that we improve our merchant experience by making access to bank based payments. And KYB right, and underwriting are all critical use cases.

And so for us, it makes sense to build. But in other areas, we've chosen to work with specialized vendors who are sort of supporting our lending business because there's not necessarily a competitive advantage for Stripe or clear value, and there's a really good opportunity to partner with someone who could provide a lot of opportunities. So in general, I think we're excited to do both. We're really excited to bring partners into our ecosystem to provide value to our users, but we're also excited to build where we think that Stripe has some sort of competitive advantage. Yeah, I would agree definitely on the overall build by. Certainly there's the resources piece of it, the time, the expertise, or competitive advantage, I guess, to focus less on that then and more on okay, if we are thinking about partnering or buying, what are some of those things we're thinking about and what are we looking at? Certainly we're looking at the job to solve that partner is focused on, especially in the next one to two years. Are we aligned? Are they solving our needs for our immediate use case, but also potentially in the broader company? What are other folks needing and how could this fit in? We're probably also looking at the roadmap, so maybe in the short term we're aligned.

But is our vision aligned? Is where we're going and our product philosophy? How does the partner think about building products? What's driving their prioritization? And how does that compare to how we think about things and how we build product? And do we think those will go well together? We're definitely looking at level of expertise. So if we're going to outsource some of this, is this the person that we think is going to be the expert in this space? They're going to know this and do this better than anyone else? And can we trust them there? We're probably also looking at support. If we're going to buy and partner, then how are we actually going to work with them both before we work together, but also once we start working together, what does that ongoing support engagement look like as part of that collaboration style? So how do they like to work? How do we think we're going to be able to work together? Does it sound really nice during the sales pitch? But once we start working together, it's not actually going to be a good relationship we can build on. And so those are just some of the things we're thinking about when we're having conversations with folks like Rutter and trying to understand if we are going to buy or we're going to partner. Is this the right person that we want not just today, but for the long term? Awesome. Eric, is there anything that you want to add before we move on to the next question? Yeah, I think the one piece in the build versus buy, and this is a little, I guess, self centered because it's what we do. But I think one of the things that we've found is oftentimes when people are making that decision to build versus buy, they're evaluating the engineering hours needed to build the initial integration.

That's a piece of it. But then there's the ongoing maintenance of it, which tends to be this hidden cost. And I think that the real hidden cost, actually, particularly in the case of the type of data aggregation products that Rutter provides, is getting access to some of these platforms is not just the integration itself, but it's actually going through the application approval process with the given platform and in some cases, building an app within that platform's. App store. It could be a bunch of work. We worked with one customer that went the route of trying to build it, and they said six months trying to build an app to get approved with a big commerce platform and ultimately never got it approved.

We ended up working with them and kind of getting them through. But it's just one of those kind of hidden costs associated with building that was a big distraction for them and wasn't additive to their business. I think similar to what Parker and Manifest saying, is it going to be differentiating if you build it on your own, or is it just something you need to have in a staple stakes? And if it's not going to be the thing that's going to move the needle for your business in the near term, then it doesn't make sense to invest in it personally.

For sure. Yeah, sounds like BigCommerce should try to make it easier for their customers to get approved. It wasn't BigCommerce. That was a long okay, got it. A commerce platform that does big business. There you go. There you go.

All right. Well, with the explosion of all types of new data sources that's powering all sorts of underwriting KYB, like everything across the stack, I'm curious for all three of you guys, what are innovations that you guys have seen? What are you expecting? And then what are some of the challenges that you're seeing as well? I know you guys touch a little bit upon just having too much data and making sense of it, but I'm curious, how do you think it will change the landscape moving forward as well? Yeah, again, at risk of trying not to repeat too many things that have been said, overall, I think excited about the opportunity to make financing more accessible to a broader group of people, both in terms of types of businesses, different segments of businesses, but also types of founders, founders in different locations. Folks who historically maybe didn't have access through the connections or the networks or their backgrounds, things like access to data can actually don't want to use this word, but like democratize, democratize access to financing and make it more accessible to people. And so I think that's just really exciting and something that is very much needed in terms of specific things. Again, I think there's a lot of segments, specific financing options that are coming up, whether that be for SaaS companies, for eCommerce companies, for gaming companies. Folks are able to really look at data for those specific types of businesses, those platforms, and build various products. Maybe they're a twist on merchant cash advance, maybe there are other things, but they are all tailored to specific businesses.

And knowing that business, having data access to that, that no one's been able to do before, I think we're also seeing interesting, like buy now, pay later applied to the business side. So we've seen that a lot on the consumer side, but starting to see that on the business side as well. And I could probably go on and on. But in terms of challenges, certainly proliferation of data doesn't necessarily mean it's good data. It doesn't mean it's usable, it doesn't mean it's trustworthy. And so whether you're doing it first party or whether you're partnering with someone like Rutter, like, what gives you the confidence that the data you're getting actually means what you think it means? And it's the data that you need, and you use that to build products. So I'll pause there rather than ramble on and on and hand it off.

Yeah. I would echo everything Parker said, in particular the last point, which is we have lots of data at stripe, and the question is, what data can we trust? And more importantly, how much confidence do we have in the relationship between the data we have and the decisions we're making? And you need to have a lot of confidence in that in order to continue to make financing available to more users. Ultimately, I think in terms of what new products innovation is going to be built, I think it's all the things Parker said. It's new types of businesses, it's new geographies, it's new product bought product structures, repayment structures, et cetera, in the financing space. I think the big thing ultimately that I'm excited about long term is distribution and reducing friction within that distribution. So Eric mentioned KYB before. If you can take the same set of data sources and do both targeting underwriting and KYB, that's really critical because now you've reduced from three steps to one step for a user.

I think that is like a big innovation. Maybe that isn't driving a net new product, but a net new experience for users. And I think that's been a huge change in the market, is like fintechs are really understanding how they can do that all at once.

I think one of the other big changes are kind of innovation to come is like this move towards new approaches to underwriting or new philosophies to underwriting. I think small business underwriting, particularly for kind of smaller, shorter duration loans, kind of very much followed consumer underwriting in that you would try to verify income that might be self reported or not, and then you'd get a credit score. And that was information that you kind of make your decision on. And what that did is that boxed out a number of businesses that were growing, had a high potential for growth that were just getting started.

But we're going to be very strong and productive businesses. And I think now with the ability to pull in all these new types of data to get a real time picture of how that business is performing, how the sales are performing, how the customer mix is evolving, you can get a much sharper picture and extend credit to people you could never extend credit to before. So I think that to me is probably the most exciting piece is the ability to basically, as Parker said, democratize access to credit with all these new data sources. There you go. I feel like a 16 Z should write an article titled Democratizing Access to Credit with all these new data sources over sequel to their famous Every Company is a Fintech company blog post. But just to wrap things up, looking forward for Rutter, Mercury and Stripe, specifically the Capital teams, what can we expect from your roadmap? How are you thinking about things like what are other trends that you guys are digging into and following closely? Just would love to learn a little bit more about that. Every company eventually going to be a lending company.

What are you guys seeing? What's in your roadmap? Yeah, I think first Stripe, as you know, we partner with some of the largest vertical SAS BW Marketplace platforms in the world. And at the risk of saying a buzzword, I think embedded finance is really here and it's here to stay and only going to grow.

Your classic Fintech 1.0, 2.0, 3 .0, SAS, 1.0, 2.0, 3.0, whatever you want to call it, like 3.0 is here. And companies are layering on embedded financial products in spades in ways they were not even two, three years ago. And I think we're early in the evolution. But at Strike, we've seen companies like Light Speed, Chaver, House Call, Pro layer on multiple financial products already using our embedded finance suite. Capital is an example of one of these products that we're very excited about and which can deliver value to both platforms and their end users almost on day one. And so I think what you're going to see is two things. One, more and more of these platforms and Marketplace are going to realize the value of embedding financial services within their offering because ultimately their end users, whether they're SMBs startups growth, companies are going to see a bundled solution as differentiated and at some point they're actually see this a must have.

We just see in all of our user research when we talk to our platform users, that their SMBs want a centralized hub and there's obviously a product and go to market challenge associated with maybe this SMB already has a bank, et cetera. But in particular, when you hone in on those users who are newer, maybe digitally native, moving from a personal, for example, to a business bank account for the first time, because now that's something they can do more easily, you're going to see a huge shift in terms of usage there. But I think the critical piece to call out is that's not going to happen on its own. It's really critical that embedded financial services providers like Stripe, of which there are many, not only make it easier for these platforms to integrate these offerings into their products, but we ensure that these products are best in class. I think there may have been in the last couple of years. And if you just offer an integrated financial services product, that's enough. Like the integrated solution itself is good.

What we're seeing is that it has to be best in class. Your banking, your card issuing, your lending product can't just exist. That has to be better than the bespoke products that you might be able to find elsewhere. And I think that's going to be the big shift in the next two to five years, is you're going to really see these embedded financial services products start to mature, like both in financing and outside of financing. Yeah, I think those are all very reasonable predictions for where things might go and where we should all be focused in terms of Mercury specifically. The boring but true answer maybe is that really we are in terms of where we're going. We're just really trying to focus on our customers and chatting with them and understanding what their needs are as they continue to grow.

And so while we've been really fortunate to build products, customers love when they're getting started and they need that core banking, we're really trying to work with our customers to say, how can we help you grow and scale as a business? Again, we want to build those products that help founders succeed and help their business succeed and their employees succeed all through that. And so what we're doing is just how can we take these traditional bank products or these ones that don't even exist yet, think about the problems the customer is trying to solve and think how we can build those in a better way. And so Rutter is a huge part of that for us, of course, and why we're chatting and why we work together. If we're going to move not just in the SMB financing space, but also, again, in the true commercial space where there's not as much of this technology and innovation coming to it, how can we work together with partners like Rutter to really simplify the process for applying and managing your financing with a company like Mercury? And so I think you can just expect to see more of that. I think you should definitely reach out if you're a customer or a potential customer or even if you don't work with Mercury and you just want to explore whether venture debt is the right fit or what will be the right fit for you. We're here to understand what our customers needs are and how we can better solve those and whether that's with us or with someone else, we're just looking to find better ways to help out. I'd say let's chat to close, I guess, on the river side, I guess.

I don't know how the world is defined embedded Finance 2.0 but if Embedded Finance 2.0 is pulling in as much data as you can get your hands on to make a decision I think one of the sage pieces of advice I heard from one of our customers was you got to evaluate the customer experience. Cost of a piece of data. Does it cost more from a friction standpoint? Does it cost more from a conversion standpoint to ask them for that data than the value that it provides in terms of the underwriting that you can give them, in terms of the loan that you can give them. I think that next phase, I don't know if it's embedded finance three auto will be, I think, marks by figuring out which data points are most valuable to make that decision that can lead to the best possible customer experience. I think one of the things that we want to do from Rutter standpoint is really work with mercury, work with Stripe to figure out your guys customer needs, like what data points are most valuable to you and what customer experience cost is most valuable to you, and build the integrations needed to basically make that happen. So I think the next phase for Rutter will be a whole new set of basically types of platforms. I guess that's the way that we think about it.

So we've done commerce and accounting, but what's the next one? Is it bill pay? Is it payroll? Is it a new geography? Is it a new type of conversion experience? What is most valuable for you guys in terms of growing your business? So that's what we're excited to work with you guys on. All right. I was waiting for somebody to mention web 30 or crypto, but I'm glad we skipped that for this panel. Awesome. Well, that's a wrap for all the questions we had for today's panel. I know we have four minutes left, so why don't you open up to q and a? We may have go over like, one or two questions from the audience and then officially wrap things up. Let me just read through our q and a.

So the first question all right, SMB lending for legacy plus in person services operating today might be low tech or might not have the ability to offer more enriched historical commerce data from existing business systems. How does Rutter position themselves to those types of customers unlock access to better lending? So I think this is for you, Eric. Okay, so I think to paraphrase the question, this is actually something I guess we saw a plaid too. We have all this data. We can provide this great experience that works if you are a technology forward company and you have an online presence and experience. But how does it work? How can you bring services like this and capabilities like this to players that are maybe not online first? They may be more kind of branch first.

I think that's a great question. I think there's very lightweight ways of basically creating, for example, Rutter link, where you can just send a link to them and ask them the link, and then you can just export the data via PDF. The way that Rutter provides the majority of information today is via API, but we can also have exports and moving to a world where we provide reports, particularly the data that you need is probably the best way to serve customers that don't have the ability to consume all the raw data and transform it on their own. Awesome.

And then I think the last question is how are you solving for specifically slow proprietary verification in the SMB space, the data points to consider as well as the accuracy? Do you guys have thoughts on that? Not sure if it's the most applicable, but if folks have thoughts, it's a good question. I'm by no means experts on verifications. It's a constant problem that we were trying to iterate on capital. So I can't say by any means we've solved it. In general, I think the question is both like, how do we go about it and what are data points to consider? As you may know, like David and Eric mentioned earlier, we have an existing relationship with a lot of the users that are engaging with trade capital. So for us, it's really about updating our understanding of who the user is and who specifically is asking to take the loan. So in our case, it's making sure that the person who's applying for the loan hitting accept taking on debt on behalf of the business is someone who has the right to do so, as defined by sort of our Stripe policies.

I think that's really critical. And so for us, those data points really do anchor around identity verification, whereas for another business that is seeing you for the first time, they need to access more data points. But yeah, that maybe gives a sense of how we're focusing on the Stripe side. Well, that's a wrap. We're right on time. This is so much fun, guys. I appreciate all the insights and looking forward to seeing SAS 3.0 and embedded, but this has been so much fun.

Thanks for joining us, all three of you guys. Thank you. Thank you so much for having us. Awesome. Cheers.

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